The Truth on EVs Hertz Transcript

John Robson:

How’s this as a slogan for the EV transition? “We’re not going.”

It about sums it up. There’s a lot to say here, including about the Canadian government believing that EV batteries are the industry of the future, apart from the bit where nobody wants to build them, so the government needs to subsidize the whole process, and nobody wants to buy them, so the government needs to pass laws that force you to. We’re now billions of dollars into the latest “industrial strategy” debacle and there’s worse to come. But for now, we want to focus on just one aspect of the story: Hertz’s catastrophic bet on electric cars.

For the Climate Discussion Nexus, I’m John Robson, and this is a CDN “Crystal Ball” check on the can’t-miss bet that re-bankrupted an auto-rental giant.

Narrator:

The Hertz Corporation was an innovative entrepreneurial success for nearly a century after its 1918 founding. It pioneered the rental car charge card in 1926, opened the first airport rental location in 1932 and had the first one-way rental option in 1933.

In its glory days it was such an American icon that its chief rival Avis adopted the slogan “we try harder”, and they didn’t need to say “than who”. Everyone just knew they were talking about Hertz. But by the 21^st century it had drifted into sluggish management and dubious customer service before being bankrupted by the collapse of business travel during the COVID pandemic.

John Robson:

Still, good old American enterprise to the rescue, right? Two venture capitalists, Tom Wagner and Greg O’Hara, bought the firm in a fire-sale bankruptcy auction, threw a lavish Manhattan party at a trendy club with trendy music, and did what all the trendy rich people were doing. They bet the house on EVs.

Narrator:

Hertz’s new owners decided to scrap Hertz’s fleet of gas-powered rental-cars and go all in on the electric kind. As Bloomberg reported, “The company announced an unprecedented order for 100,000 Teslas and struck an exclusive deal to supply EVs to Uber drivers. It planned to build out a national, and eventually global, charging network at Hertz’s thousands of locations, with ambitions to become the service manager for the autonomous-driving era.”

They also hired celebrity NFL star Tom Brady to quarterback their new ad campaign. The market loved it. Investors rewarded their brilliance and vision with a massive run-up in the stock price. By November 2021 Hertz’s market valuation was $15.3 billion, three times what Wagner and O’Hara had paid just five months earlier.

John Robson:

What could go wrong?

Uh, well, what if EVs were a bubble? So fast forward to April 2024 and, according to Bloomberg, the picture looks very different:

Narrator:

“By early 2024 it was clear the massive bet on electrification was a catastrophe. Musk had slashed Tesla prices by as much as 30%, sending the value of Hertz’s EVs plummeting. Wagner and O’Hara’s plan was filled with countless other miscalculations that only deepened the wound. All that talk of a radical makeover for a tired industry has gone silent, and the company is now doubling down on gas guzzlers.”

John Robson:

Now, “gas guzzlers” is an unfair term for modern “Internal Combustion Engine” vehicles, which are miracles of efficiency and ecology compared to their 1970s predecessors. Following the introduction of catalytic converters, and decades of engine design improvements, new cars today release less than one percent of the tailpipe emissions per mile that new cars did in the 1960s. Which is why, even with lots more cars on the road, vehicle-related air pollution levels like carbon monoxide have fallen dramatically.

And, crucially, car companies want to keep making them, and consumers want to keep buying them. Unlike EVs. People don’t want to buy those and, as Hertz discovered the hard way, they don’t want to rent them either.

Narrator:

Hertz’s EV bet was a dud with customers. And not just because Hertz seems to have ongoing management and customer relations problems. They also turned out to be costlier to maintain than the company expected, making them a financial dud as well.

John Robson:

Elon Musk and his Tesla Corporation were very trendy back when he seemed to be an eccentric atheist, smoking a joint on the Joe Rogan podcast and flaunting a distinctly non-traditional family, consisting of 11 children by three different women, one of whom he married and divorced twice. He also went in for groovy high tech-sounding names for his kids, for instance naming one of them “X AE A-XII” [NOT AS I MISREAD IT “X-XII”]. After he bought Twitter in the name of free speech, his star faded on the left, just around the time all the rich people wanting to buy a Tesla appear to have done so, at which point sales began to stall.

So, while he has a remarkable gift for entrepreneurship, especially where subsidies are involved, and for self-promotion, his core business does seem to be in trouble. Tesla shares are down about two-thirds compared to their late 2022 peak, and they’re down by half just since mid-2023. In April 2024 Tesla announced it was laying off 10% of its employees. The slowdown in sales, even with massive government subsidies to consumers, has finally become noticeable, even to the trendy Wall Street people.

Narrator:

As Statista put it: “Tesla’s deliveries fell short of Wall Street expectations in the first quarter of 2024, as the company delivered 386,810 vehicles worldwide versus expectations in the range of 450,000. The latest figure not only marks a significant drop from the 484,507 vehicles delivered in Q4 2023, but, more concerningly for investors, it also marks the first year-over-year decline in deliveries since the second quarter of 2020, when production was severely disrupted by Covid lockdowns.”

John Robson:

And it’s not just Tesla. Trendy Apple killed its trendy electric car after a decade of effort and billions in research that never saw a single vehicle reach even a showroom.

And we now see a cascade of headlines like “Ford delaying rollout of new electric pickup truck, SUV” and “Demand for electric cars slows sharply as customers revert to petrol” and “Mercedes Benz ditches plans to sell only EVs by 2030” and even “Owning an electric vehicle is madness and I regret ever buying one”.

Enthusiasts like Heatmap Daily still see a story of glorious triumph. Editor Robinson Meyer claims:

Narrator:

“America’s most interesting electric-vehicle company is about to have the defining year of its life. On Wednesday, the company reported that it lost $1.58 billion in the fourth quarter of last year, bringing its net annual losses to $5.4 billion. It announced that it is laying off about 10% of its salaried employees, but – at the same time – promised that it has a plan to achieve a small profit by the end of this year.”

John Robson:

Yeah. And the Canadian government had a plan to balance the budget after three small deficits. But that wasn’t Tesla that Meyer was talking about, though interestingly he also cites Tesla as a beacon:

Narrator:

“It’s a frightening time, but once a company crosses the valley of death, it can reach an idyll. Not so long ago, Tesla found itself in something like Rivian’s position as it prepared to launch the Model 3. Seven years later, it is the most valuable automaker in the world.”

John Robson:

Yeees. But sustained by what? Not, apparently, customer demand. It turns out, once again, that governments didn’t know better than consumers how each household should spend its money. When’s the last time something like that happened? Oh, yeah. The “compact fluorescent bulb” they mandated that was ugly, and so toxic that if you broke one you had to evacuate your family and your pets from the house. And frankly, if we were to list everything governments have gotten badly wrong in the economy, we’d be here all night.

And the story gets worse. We also see headlines like “China’s EV Growth Set To Explode in 2024”. Chinese electric cars are continuing to invade the market like the People’s Liberation Army hopes to do to Taiwan, in a vast opaque government-backed enterprise designed to undermine the West and give Beijing control of world affairs on the back of an ecologically catastrophic industry.

Narrator:

As Yahoo News put it: “China is dominant in the global EV sector, accounting for 69% of all new EV sales in December, and continued growth is on the cards… The country has also advanced its EV penetration targets, aiming for a 45% market share by 2027, an increase from the originally planned 40% by 2030.”

John Robson:

Okay. Does it prove they’re the vehicle of the future if only capitalism were as nimble and far-sighted as Communism? Heck no. Some Chinese firms actually lose as much as $10, 000 per car sold in the West. But it’s a lot worse than just another state-sponsored bubble.

They think no sum is too high to conquer us. And by passing laws forcing Western consumers to buy EVs, our own governments are creating yet another opportunity for Communist China to take over a key sector of our economy, in the process wasting billions of dollars of our money subsidizing their long march. Or long drive in this case.

We should all take a lesson from Hertz. Yes it was a private-sector debacle, and yes we’ve seen private sector investment bubbles before. But this one was fueled by public-sector hype, elite credulity and a rickety system of subsidies that could not make up in quantity for what it lacked in quality.

For the Climate Discussion Nexus I’m John Robson, and that’s our CDN “Crystal Ball” check on the capacity of investors, projectors and politicians to detect a magical surge in demand for cars that actual people don’t want.